Healthy Partnerships: CHI and DOC Join to Create the Largest MOB Monetization in Industry History
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2016 was a game-changing year for the healthcare REIT industry, and at the center of it all were Physicians Realty Trust (NYSE:DOC) and Catholic Health Initiatives (“CHI”).
According to DOC’s President and CEO John Thomas, this landmark $700 million transaction with the nation’s fifth-largest nonprofit health system resulted in the creation of “one of the largest and most important medical office facility relationships established by a real estate investment trust directly with a major healthcare system.”
Through this partnership, DOC acquired 50 of CHI’s medical office facilities across 8 states, consisting primarily of medical office buildings and outpatient centers.
CHI comprises a network of 3,950 affiliated physicians and 95,000 employees, serving approximately 16 million outpatient visitors and 500,000 inpatients annually. CHI, a faith-based health system headquartered in Englewood, Colorado, was formed in 1996 through the consolidation of four Catholic health systems. Their extensive portfolio of more than 2,400 properties nationwide across 18 states includes four academic health centers, 104 hospitals including major teaching centers, 30 critical-access facilities, community health-services organizations, accredited nursing colleges, home-health agencies, living communities, and other facilities and services that span the inpatient and outpatient continuum of care.
As part of a 2015 CHI strategic plan to review its real estate portfolio, CHI’s leadership sought an organization to monetize their physical outpatient and medical office assets. Just as importantly, CHI sought a long-term investor that is an experienced and proven medical office real estate management partner with the resources to fund tenant improvements and capital projects. Throughout the process, CHI’s advisors worked with CHI’s team to organize information about all of these assets, review offers, and assist with interviews and negotiations.
According to Courtney Hanfland, CHI’s System Director of Real Estate Transactions, who helped lead the process, DOC quickly rose to the top of the list based on its reputation and access to capital. “They came with a thoughtful presentation and comprehensive acquisition plan. They had clearly taken a great deal of time during the initial underwriting to understand our markets and properties. Their portfolio transition planning impressed us the most,” Hanfland said. “We also really appreciated their senior leaders’ deep level of healthcare experience. After interviewing all top firms, it was clear that Physicians Realty Trust was the best partner for CHI, and luckily we were able to move forward with them.”
As part of the selection process, and at DOC’s suggestion, the DOC team met with CHI’s division heads and hospital administrators to build confidence and understanding among stakeholders, ensuring a smooth and efficient post-transaction experience. Following the sale, it was clear the early stage in-person meetings and thorough transition planning had paid off. Hanfland shares that feedback from CHI’s administrators and market leaders has been extremely positive, especially when it comes to communications, marketing, and reporting. “We want our physician partners on campus. Physicians Realty Trust understands this and has hit the ground running with multiple leasing successes,” said Hanfland. “They’ve been able to secure lease renewals we were challenged to complete, as well as recruit new tenants to our campuses.”
Monetizing these properties has helped enhance CHI’s healthcare real estate service delivery platform. It also provided resources to help CHI pursue its vision of transforming healthcare to achieve optimal health and well-being for the individuals and communities they serve, especially those among society’s most vulnerable populations.
According to DOC’s John Thomas, “We are helping to free CHI executives, management, physicians, providers, and staff so that they may focus on their primary mission—nurturing the healing ministry of the Church, supported by education and research—while DOC provides real estate capital, management, and strategic intellectual support to enhance their existing facilities, recruit physicians, and provide outpatient strategies.” Hanfland agrees, sharing, “It definitely allows us to reinvest the capital back into our mission, advancing the way we deliver healthcare to our communities and, of course, for sustaining an organization in somewhat turbulent times.”
In the end, the deal is considered a real win-win. Hanfland says, “We are very happy with Physicians Realty Trust. They are a strong real estate partner. These things can go very well or very poorly when you’re dealing with a 50+ building portfolio and complicated dynamics. To be perfectly frank, we couldn’t have asked for a better outcome.”
Photo @ Attic Fire Photography, courtesy of ESa